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Rural Electrification in India: Focus on Service Quality

Ideas For India

June 21, 2017

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India has set an ambitious goal of achieving high-quality electricity supply for all households by 2019, and impressive progress has been made in increasing the number of household electricity connections. However, this column finds that the quality of electricity service to rural households is dismal and this is considered to be a major problem by rural households. There is a need for rationalising rural electricity tariffs to ensure cost recovery in exchange of improved service quality.

The traditional model of rural electrification is all about connecting households to the electric grid (example, Barnes 2007, Niez 2010). When rural electrification rates remain low, extending the electric grid to remote communities is a first step toward enabling households to enjoy the benefits of electricity. As communities and households gain access to power, they can use it for domestic lighting and to run electric appliances, such as fans and televisions. Electricity also contributes to the mechanisation of agriculture and to productive rural industry.

According to conventional indicators, India has made rapid progress in rural electrification over the past decade: during 2001-2011, the rural household electrification rate increased from 44% to 55% (Census, 2011). However, the quality of rural electricity service remains poor in many areas of India, preventing households from improving their quality of life and firms from increasing their productivity. A recent study of India’s flagship electrification programme (Deendayal Upadhyaya Gram Jyoti Yojana, which has subsumed the erstwhile Rajiv Gandhi Grameen Vidyutikaran Yojana) – found that it has not contributed to rural economic growth (Burlig and Preonas 2016), and the low quality of electricity service is a possible explanation for this disappointing result.

Quality of domestic electricity service in rural India: Evidence from ACCESS data

How big of a problem is the low quality of rural electricity service? Between November 2014 and May 2015, we fielded a statistically-representative survey of 8,568 households in six large states of India – Bihar, Jharkhand, Madhya Pradesh, Uttar Pradesh, West Bengal, and Odisha (Jain et al. 2015). We collected information about the participating households’ electricity access, subjective satisfaction with the situation, and policy preferences. To our knowledge, this is the largest and most comprehensive survey of energy access in India to date.

The survey revealed the dismal state of electricity supply in rural India. In the six study states, the average electrified household reported receiving only 12.5 hours of electricity per day; in Bihar and Jharkhand, only 9 hours were available. Households also reported 3.6 days of blackouts (no supply for continuous 24 hours) per month. On a 0-2 scale, electrified households reported an average satisfaction with their electricity access of only 0.95.

In an analysis published in Nature Energy (Aklin et al. 2016), we identify the low quality of electricity service as a major problem for rural households. According to a statistical analysis of the survey data, increasing daily hours of electricity service by one standard deviation1 (~6.5 hours) would have an effect on a household’s subjective satisfaction with domestic lighting comparable to that of electrifying a previously non-electrified household.

Based on these results, we can infer that the value of improving the quality of rural electricity service would be high. Connecting households to the grid – or perhaps to off-grid systems – is a necessary first step toward domestic electricity access, but the benefits of rural electrification depend to a large extent on the quality of the service available.

Policy implications

Our findings underscore the importance of moving beyond connectivity in rural electrification: the central and state governments of India should make the quality of rural electricity service their top priority. As India’s rural electrification rates continue to increase, the country finds itself in a situation in which hundreds of millions now live in households with an electricity connection (through the grid or stand-alone systems), but supply is intermittent and limited, and precludes these households from reaping the benefits of electricity use.

A major problem with India’s rural electricity situation is found in the distribution sector. Because rural electricity tariffs mostly do not cover the total cost of generation, transmission, and distribution, distribution companies have limited incentive to invest in rural electricity infrastructure or to increase the number of hours available. Moreover, the poor financial performance of distribution companies hinders improvements in the quality of rural electricity supply. Our results suggest that improving the quality of rural electricity supply could substantially increase households’ subjective satisfaction with electricity, strengthening the case for electricity pricing reforms in exchange of better quality of supply. As the quality of supply improves, rural households’ willingness to pay their bills – instead of non-payment or electricity theft – may increase.

A high-quality electricity service requires a series of power sector reforms that encourage distribution companies to deliver services appropriate to the tariffs that are being charged. While reform in the sector is likely gradual, it is important to break the vicious cycle of poor performance of utilities resulting in consumers losing the will to pay for appropriate levels of service. The benefit of having continuous electricity supply must be seen by large sections of the population, and this achievement can potentially revive the waning fortunes of the utilities.

Indian policymakers can begin moving into the right direction with gradual, strategic policy reforms. However, the posturing and immediate action must also reflect the long-term intent. Such reforms could, in the long run, also furnish economic benefits. Distribution companies lost more than Rs. 70,000 crore in 2013-14 alone. The cumulative losses and revenue arrears are even more staggering. Making electricity a desirable commodity and extracting the appropriate revenues for providing it will both enable a transformation of ailing utilities and alleviate the electricity access woes of rural India. Subsidies and schemes to connections households alone will not solve the problem in the long run.

Universal electricity access: An impetus for power sector reform

India has set an ambitious goal of achieving high-quality electricity supply for all households. While progress in increasing the number of household electricity connections is impressive, the low quality of service remains a major problem for large segments of the rural population. If India is to provide an adequate electricity service to the entire rural population, the quality of rural electricity supply must improve. Improving this quality, in turn, requires a series of power sector reforms, as distribution companies cannot provide high-quality supply without recovering their costs. For India’s ambitious rural electrification programme, these reforms are the next frontier.